Nanex, a US data analysis firm, has said high-speed traders may have been the primary cause of the delay the Facebook IPO and could have subsequently profited at the expense of retail investors.

On
18 May, the IPO of Facebook was delayed by around 25 minutes after Nasdaq OMX
experienced technical difficulties when trying to set an opening price. The
five millisecond continuous order placement period used by the US bourse to
calculate the opening price was reportedly disrupted by order cancellations
which required Nasdaq OMX to manually override the process, leading to the
delay. As a result many investors received trade confirmations hours late and
some were unable to determine whether they bought or sold the stock.

Although
Eric Noll, head of transaction services at Nasdaq OMX, has stated that
high-frequency traders were not active during the opening price auction
and would have instead begun participating after the stock started trading on
all US markets, Nanex has taken a conflicting view.

“Only
high-frequency traders can cancel quotes at that rate,” read the research. “And
ironic enough, it was mostly [high-frequency traders] that benefited later when
Nasdaq quotes stopped coming from the Securities Information Processor which
transmits quotes for everyone who doesn’t get the premium direct feeds.”

Those
firms that are co-located and receive high-speed data feeds continued to
receive quote information from Nasdaq OMX, demonstrated by the continuance of trading
at the exchange, according to Nanex.

The
technology issues surrounding the Facebook IPO have brought issues relating to
the safety of markets back under the spotlight. The Financial Industry
Regulatory Authority and Nasdaq OMX are jointly developing a procedure to
compensate investors that lost money. Thomas Joyce, chairman and CEO of broker
Knight Capital said that losses related to the glitch may cost the industry
around US$100 million.